The Australian dollar dropped below 87 U.S. cents for the first time since July 2010 after China’s bank regulator ordered regional offices to increase scrutiny of credit risks in the coal-mining industry, according to people with knowledge of the matter.
The Aussie slid versus all 16 major peers after the Wall Street Journal cited central bank board member Heather Ridout as saying around 80 cents would be a fair deal for everybody. The nation’s three-year bond yield slid by the most in four months amid increased demand for the relative safety of sovereign bonds. New Zealand’s dollar also fell.
Both stories have “combined to hurt the Aussie,” said Greg Gibbs, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “The Australian dollar is going to be treated as low-risk insurance against possible financial stress in China.”
Australia’s dollar tumbled 0.7 percent 87.08 U.S. cents as of 5:19 p.m. in Sydney after touching 86.89, the lowest in more than three years. It dropped 0.7 percent to 89.92 yen following a 2.1 percent slide yesterday that was the biggest since June. New Zealand’s kiwi fell 0.4 percent to 82.71 U.S. cents and slid 0.3 percent to 85.45 yen. Australia’s dollar declined to NZ$1.0525, a level unseen since December 2005.
China’s efforts to contain a “financial excesses” won’t be positive for growth, Gibbs said. The next major psychological level for Aussie is the 2010 low near 80 cents, he said.
The China Banking Regulatory Commission’s order didn’t mention concerns that a 3 billion yuan ($496 million) trust product distributed by Industrial & Commercial Bank of China Ltd. may default after the coal miner that borrowed the funds collapsed, said the people, who asked not to be identified because the matter isn’t public. Regional CBRC offices were told to also closely monitor risks from trust and wealth management products, they said.
China is Australia’s largest trading partner.
Reserve Bank of Australia Governor Glenn Stevens signaled last month that a weaker local currency is preferable over lower interest rates to help spur the nation’s economy. In an interview with the Australian Financial Review, he said “85 U.S. cents would be closer to the mark.”
The Aussie has dropped 15 percent in the past year, the biggest drop among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. The kiwi is up 2.1 percent.
RBA board member Ridout was today reported as saying that the currency hasn’t fallen sufficiently.
The Australian three-year bond yield slid 15 basis points, or 0.15 percentage point, to 2.82 percent in the biggest daily move since Sept. 19. The 10-year rate dropped 12 basis points to 4.05 percent, the lowest level since October.
Australia’s dollar dropped yesterday as the biggest devaluation of the Argentinian peso in 12 years sent demand for riskier assets tumbling. South American nation devalued the peso after its central bank scaled back intervention in a bid to preserve international reserves, which are the government’s only source to pay foreign creditors.
“The Aussie is very sensitive to perceptions of risk,” said Joseph Capurso, a Sydney-based strategist at Commonwealth Bank of Australia, the nation’s biggest lender. “If you’re an investor and thinking of which currency you want to short because of emerging-market problems, you sell the Aussie because it’s a liquid commodity currency with a current account deficit.” A short position is a bet a currency will fall.
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